State-backed Royal Bank of Scotland (RBS) confirmed it plans to push ahead with a flotation of its Direct Line insurance division in what could be the biggest listing on the London Stock Exchange for more than a year.
RBS, which is majority-owned by the government after a bailout during the 2008 financial crisis, was told to sell Britain's biggest motor insurer by European Union regulators as a condition for taking state aid.
"We believe it has a strong future as a standalone insurance group, continuing to serve its customers well while delivering attractive returns to investors," RBS Finance Director Bruce Van Saun said in a statement on Friday.
Analysts have said that the initial public offering (IPO) could value Direct Line at more than 3 billion pounds ($4.8 billion), but the business may struggle to match that valuation in tough market conditions that have already scuppered a planned flotation by Germany's third-biggest insurer Talanx .
Talanx abandoned its Frankfurt IPO on Wednesday, saying that investors were demanding too big a discount on the company's valuation relative to what its investment banking advisers had foreseen.
If RBS were to encounter a similar experience to Talanx, it would have the option of re-examining a straight sale or asking Brussels for an extension to the deadline. Under the EU directive it must have sold more than 50 percent of its shares by the end of 2013 and its entire holding a year later.
RBS will market the offer to potential investors over the next few weeks and will be under political pressure to secure a good deal. UK taxpayers are sitting on a loss of more than 20 billion pounds after Britain pumped 45 billion pounds into the bank to secure its future. ($1 = 0.6226 British pounds)
(Reporting by Matt Scuffham; Editing by Myles Neligan and David Goodman)